Chatham Lodging Trust — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Chatham is a REIT focused on upscale extended-stay and premium-branded select-service hotels. At quarter-end it wholly owned 41 hotels with 6,169 rooms. Comparisons with 2020 are affected by the COVID-19 recovery, hotel transactions and a prior-year impairment.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $64.3 million | $35.0 million | $146.7 million | $115.4 million |
| Operating income (loss) | $4.4 million | $(10.2) million | $(11.4) million | $(46.6) million |
| Net loss | $(1.4) million | $(18.3) million | $(7.4) million | $(73.6) million |
| Net loss attributable to common shareholders | $(3.3) million | $(18.1) million | $(9.2) million | $(72.7) million |
| Net cash from (used in) operations | Not presented for quarter | Not presented for quarter | $18.4 million | $(12.8) million |
- Q3 revenue rose 83.9% year over year. Same-property RevPAR increased 92.2%, with occupancy up 38.1% and ADR up 39.3%. Nine-month same-property RevPAR increased 37.6%.
- Q3 Adjusted Hotel EBITDA was $22.5 million versus $6.1 million; nine-month Adjusted Hotel EBITDA was $41.6 million versus $20.1 million. These are non-GAAP measures and are not substitutes for GAAP results or cash flow.
- At September 30, cash and cash equivalents were $18.6 million; restricted cash was $11.0 million. Gross debt before deferred financing costs was $544.4 million, at an average interest rate of approximately 4.7%. The company reported a 30.6% leverage ratio.
- Debt included $70.0 million drawn on a $250 million revolving facility, $32.3 million on the Warner Center construction loan and approximately $442.1 million of mortgage debt. Nine-month cash used in investing was $94.3 million, principally for Austin hotel acquisitions and development.
Material changes and significant items
- Chatham acquired the Residence Inn Austin Northwest/The Domain Area and TownePlace Suites Austin Northwest/The Domain Area on August 3 for $37.0 million and $34.3 million, respectively.
- Chatham sold its NewINK JV interest in March for $2.8 million, recording a $23.8 million gain. It sold its Inland JV interest in September for no proceeds; that investment had previously been written down to zero.
- In June, Chatham issued 4.8 million Series A preferred shares for $120 million gross proceeds, or approximately $115.9 million net. The 6.625% preferred dividend is senior to common distributions. The quarter included $2.0 million of accrued preferred dividends.
- Common dividends remained suspended after the March 2020 payment; no common dividends were declared in the first nine months of 2021. A preferred dividend of $0.48307 per share was declared in September and paid October 15.
- For the nine months, cash from operations was $18.4 million, investing cash outflow was $94.3 million, and financing cash inflow was $74.0 million. The financing inflow included preferred and common equity proceeds, alongside debt repayments and construction-loan borrowings.
Outlook, risks and contingencies
- Management expected 2021 RevPAR to improve significantly versus 2020 but remain below 2019 levels. No specific company earnings or RevPAR guidance was provided.
- Management cited continuing uncertainty from COVID-19, including variants, travel demand, economic recovery and capital-market access. Results remain exposed to operating costs, competition, seasonality, interest rates and refinancing needs.
- The credit agreement waived certain financial covenants through December 31, 2021, subject to a $25 million minimum liquidity requirement and restrictions on debt, dividends and capital expenditures. Chatham reported compliance with modified covenants at quarter-end. Mortgage cash-trap thresholds were below required levels, but no lender had enforced a cash trap.
- After quarter-end, an October 26 amendment extended the covenant waiver through June 30, 2022, extended the facility maturity to March 8, 2023, and provided additional six-month extension options for lenders representing $227.5 million of commitments, potentially through March 2024. The amendment also added equity pledges on three unencumbered hotels.
- Management estimated approximately $1.1 million of remaining 2021 hotel renovations and approximately $5.8 million of remaining Warner Center development costs. Total development cost was expected to be about $70 million; $64.2 million had been incurred by quarter-end.
- Routine legal claims were disclosed; management did not expect their aggregate effect, if any, to materially adversely affect financial condition or results. The filing reported no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether hotel demand, occupancy, ADR and RevPAR continued improving after Q3, and how results compare with 2019 levels.
- Current revolver availability, liquidity-covenant compliance and the status of the amended maturity and extension options.
- Progress, remaining funding needs and expected completion timing for the Warner Center hotel development.
- The sustainability of operating cash flow and the conditions for any resumption of common dividends, alongside the cost of preferred distributions.
- How much reported improvement reflects underlying hotel recovery versus acquisitions, JV dispositions and the one-time $23.8 million JV-sale gain.